Tietenberg Tom, Lewis Lynne. Environmental & Natural Resource Economics
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451Policy toward Mobile Sources
DEBATE
17.1
CAFE Standards or Fuel Taxes?
Increasing the fuel efficiency of oil consumption could, in principle, be accom-
plished by increasing either fuel taxes or fuel-efficiency standards. By raising
the cost of driving, the former would encourage auto purchasers to seek more
fuel-efficient vehicles, while the latter would ensure that the average new
vehicle sold was fuel efficient. Does it make a difference which strategy is
followed?
It turns out that it does, and economics can help explain why. Think about
what each strategy does to the marginal cost of driving an extra mile. Increased
fuel taxes raise the marginal cost per mile driven, but fuel-economy standards
lower it. In the first case, each mile consumes more fuel and that fuel costs
more. In the second case, the more fuel-efficient car uses less fuel per mile so
the cost has gone down.
Following economic logic leads immediately to the conclusion that even if
both strategies resulted in the same fuel economy, the tax would reduce oil
consumption by more because it would promote fewer miles driven. On these
grounds, a tax is better than a fuel-economy standard.
Austin and Dinan (2005) test these ideas with a simulation model in which
they compare an increase in the CAFE standards to a gasoline tax designed to
save the same amount of gasoline. Using a highly stylized representation of the
U.S. automobile market, they examine policies that would reduce gasoline
consumption by 10 percent after the retirement of all existing vehicles (assumed
to be 14 years). They estimate that an increase in the CAFE standards by
3.8 miles per gallon would achieve this result. They compare this to a gasoline tax
designed to save 10 percent over the same 14-year period. They also estimate the
cost savings from allowing fuel-economy credits to be bought and sold by
manufacturers. They find that, even with tradable fuel-economy credits that
reduce the cost of increasing the fuel-economy standards, a tax is still
advantageous. With a tax, the savings occur much earlier than with the standards
(while the costs rise gradually), supporting the arguments above. Using a
12 percent discount rate, they estimate that a tax of $0.30 per gallon would save
the same amount of gasoline and do so at a cost that is 71 percent lower than the
comparable change in fuel-economy standards!
Supporters of fuel-economy standards, however, counter with a political
feasibility argument. They point out that in the United States, sufficiently high
gasoline taxes to produce that level of reduction could never have passed
Congress, so the fuel-economy standards were better, indeed much better,
than no policy at all. Indeed the $0.30 increase estimated by Austin
and Dinan represented a 73 percent increase in the tax on gasoline in the
United States.
Source
: David Austin and Terry Dinan. “Clearing the Air: The Costs and Consequences of Higher
CAFE Standards and Increased Gasoline Taxes.”
Journal Of Environmental Economics and
Management
, Vol. 50 (2005): 562–582.
452 Chapter 17 Mobile-Source Air Pollution
Alternative Fuels and Vehicles
In an attempt to foster the development of alternative vehicles and alternative fuels
that would be less damaging to the environment, Congress and some states have
passed legislation requiring their increased use. Title II of the Clean Air Act
Amendments of 1990 mandates the sale of cleaner-burning reformulated gasoline
in certain CO and severe ozone nonattainment regions. In the Energy Policy Act,
passed in 1992, Congress requires the federal government (and some private fleet
owners) to purchase alternative-fueled vehicles. The government has also
attempted to introduce some regulatory flexibility designed to provide even further
incentives for fleet owners (see Example 17.1). California has pushed the envelope
even further. In September 1990, the California Air Resources Board (CARB)
passed its Low Emission Vehicle (LEV) and Zero Emission Vehicle (ZEV)
regulations. The former imposed increasingly stringent emissions standards
EXAMPLE
17.1
Project XL—The Quest for Effective, Flexible
Regulation
Project XL is a U.S. pilot program that allows state and local governments,
businesses, and federal facilities to develop with U.S. EPA innovative strategies to
test better or more cost-effective ways of achieving environmental and public
health protection. In exchange, the EPA authorizes sufficient regulatory flexibility
to conduct the experiment. The objective is to produce both better environmental
quality and lower compliance costs than would otherwise be possible with
traditional, “one-size-fits-all” regulation.
One example of a project involves the U.S. Postal Service (USPS), the State of
Colorado, and the U.S. EPA. The USPS wanted to replace some of its aging,
high-polluting vehicles in the Denver area. Denver is a nonattainment area for
carbon monoxide. Colorado rules required that in the Denver area, 50 percent of
all new fleet vehicles purchased must be certified as low-emitting vehicles (LEVs).
Due to the special requirements for USPS vehicles, the only bid that met the other
USPS specifications was for transitional low-emission vehicles (TLEVs), which
could not meet the LEV requirement.
Rather than continue operating its aging fleet, the USPS applied for, and
received, permission from both Colorado and U.S. EPA to replace 512 aging postal
vehicles in Denver with TLEVs. The new vehicles are able to use up to 85 percent
ethanol fuel. Colorado, through the Colorado Environmental Leadership Program,
will give USPS 512 emission credits for scrapping the old vehicles. They can also
receive additional emission credits based on the amount of ethanol used.
The USPS proposal will result in lower emissions of carbon monoxide than
would have been achieved even if compliance with the original Colorado rules
were possible and will become part of Denver’s state implementation plan to
reach attainment.
Source
: http://www.epa.gov/projectxl/usps/index.htm
over time on conventionally fueled vehicles. The latter mandated that a certain
percentage of new cars and light trucks sold in the state must be zero emission
vehicles (defined as vehicles that directly emit no VOCs, NO
x
, or CO; any indirect
emissions from producing the electricity are not counted).
When these ZEV regulations were written, the focus was on electric vehicles,
but over time the emphasis has come to include hybrids (vehicles powered by a
combination of gasoline and electric power) and fuel-cell vehicles. In response
to this trend, the California regulations were modified in 2004. Under the new
regulations, auto manufacturers can meet their ZEV obligations in one of
two ways.
To fulfill the first option, manufacturers must sell a vehicle mix of 2 percent pure
ZEVs, 2 percent advanced technology, partial zero emissions vehicles (AT-PZEVs),
and 6 percent partial zero emissions vehicles (PZEVs), which are very clean
conventional vehicles. The ZEV obligation is based on the number of passenger
cars and small trucks a manufacturer sells in California.
Or, manufacturers may choose a new alternative ZEV-compliance strategy,
meeting part of their ZEV requirement by producing their sales-weighted market
share of approximately 250 fuel-cell vehicles by 2008. The remainder of their ZEV
requirements could be achieved by producing 4 percent AT-PZEVs and 6 percent
PZEVs. The required number of fuel-cell vehicles (to which the market share is
applied) will increase to 2,500 from 2009 to 2011, 25,000 from 2012 to 2014, and
50,000 from 2015 to 2017. Automakers are allowed to substitute battery-electric
vehicles for up to 50 percent of their fuel-cell vehicles requirements.
Clearly, this is an attempt to force automotive technology using a rather
innovative method—mandated sales quotas for clean vehicles. Notice that selling
this number of clean vehicles depends not only on how many are manufactured, but
also on whether demand for those vehicles is sufficient. If the demand is not
sufficient, manufacturers will have to rely on factory rebates or other strategies
to promote sufficient demand. Inadequate demand is not a legal defense for failing
to meet the deadlines.
How well this strategy works in forcing the development and market penetration
of new automotive technologies remains to be seen. Other U.S. states, particularly in
the Northeast, have followed suit, so the size of the potential market is growing.
European Approaches
By the late 1980s, emissions standards patterned after the 1983 American standards
were required for all new cars in Austria, Sweden, Switzerland, Norway, and
Finland. West Germany, Denmark, and the Netherlands have introduced tax
incentives and lower registration fees for lower emission cars.
On October 1, 1989, the European Community’s 12 member nations imposed
U.S.-style emissions standards on all new cars, starting with cars equipped with
engines over two liters. Similar emissions controls were extended to all engine
sizes by 1993. The European Union (EU) banned leaded gasoline in 2000 and
implemented stricter emissions standards for light-duty vehicles in 2005.
453Policy toward Mobile Sources
Russia has, in principle, agreed to follow the example of Western Europe in
introducing more stringent emissions controls, but the phaseout of lead has been
much slower. By 1995, only eight of Russia’s 25 oil refineries manufactured unleaded
gasoline. This made up 40 percent of the gasoline produced in Russia. Many former
Soviet Union transition economies have permitted lead content in gasoline that is
twice the level allowed by the EU. A few, however, have launched initiatives to phase
out lead completely. Slovakia phased out leaded gasoline in 1995, moving from a
6 percent market share of unleaded gasoline in 1992 to 100 percent in 1995 (World
Bank, 2001). A 2001 World Bank study found that it would cost between $0.005 and
454 Chapter 17 Mobile-Source Air Pollution
Car-Sharing: Better Use of Automotive Capital?
One of the threats to sustainable development is the growing number of vehicles
on the road. Though great progress has been made since the 1970s in limiting
the pollution each vehicle emits per mile of travel, as the number of vehicles and
the number of miles increase, the resulting increases in pollution offset much of
the gains from the cleaner vehicles.
How to limit the number of vehicles? One strategy that started in Europe and
has migrated to America is car-sharing. Car-sharing recognizes that the typical
automobile sits idle most of the time, a classic case of excess capacity. (Studies in
Germany suggest the average vehicle use per day is one hour.) Therefore the
car-sharing strategy tries to spread ownership of a vehicle over several owners
who share both the cost and the use.
The charges imposed by car-sharing clubs typically involve an upfront access
fee plus fees based both on time of actual use and mileage. (Use during the peak
periods usually costs more.) Some car-sharing clubs offer touch-tone automated
booking, 24-hour dispatchers, and such amenities as child-safety seats, bike racks,
and roof carriers.
Swiss and German clubs started in the late 1980s. As of 1998, an estimated
25,000 Germans and 20,000 Swiss belonged to car-sharing groups. The European
idea of car-sharing was captured by some U.S. entrepreneurs who started Zipcar,
a company that now boasts 400,000 members and fleets of car-sharing vehicles
in 50 cities in North America and the United Kingdom. Similar car-sharing
companies can now be found in hundreds of cities. What could the contribution of
car-sharing be to air pollution control in those areas where it catches on? It proba-
bly does lower the number of vehicles and the resulting congestion. Zipcar claims
that each Zipcar takes 15–20 personally owned vehicles off the road. In addition,
peak-hour pricing probably encourages use at the less polluted periods. On the
other hand, it does not necessarily lower the number of miles driven, which is one
of the keys to lowering pollution. The contribution of this particular innovation
remains to be clarified by some solid empirical research.
Source
: Mary Williams Walsh. “Car-Sharing Holds the Road in Germany,”
Los Angeles Times
(July 23, 1998):
A1; “What do you do when you are green, broke and connected? You share,”
The Economist
(October 10,
2010), accessed at http://www.economist.com/node/17249322?story_id=17249322&fsrc=rss and
www.zipcar.com
EXAMPLE
17.2
$0.02 per liter of gasoline to phase out lead at a less modern refinery in Russia. These
costs could be cut in half, however, if the refinery’s production was modified to meet
market demand.
6
The Netherlands, Norway, Germany, and Sweden used differential tax rates to
encourage consumers to purchase (and manufacturers to produce) low-emitting cars
before later regulations required all cars to be low emitting. Tax differentiation
confers a tax advantage (and, hence, after-tax price advantage) on cleaner cars.
The amount of the tax usually depends on (1) the emissions characteristics of the
car (heavier taxes being levied on heavily polluting cars); (2) the size of the car
(in Germany, heavier cars qualify for larger tax advantages to offset the relatively high
control requirements placed upon them); and (3) the year of purchase (the tax
differential is declining since all cars will eventually have to meet the standards).
Apparently, it worked. In Sweden, 87 percent of the new cars sold qualified for the tax
advantage, while in Germany the comparable percentage was more than 90 percent
(Opschoor and Vos, 1989, 69–71).
Europe not only has much higher gasoline prices, but also it has developed
strategies to make better use of transportation capital. Its intercity rail system is
better developed than the one in the United States, and public transit ridership
is typically higher within cities. Europe was also a pioneer in the use of
car-sharing arrangements, an idea that the United States has now begun to
mimic (see Example 17.2).
An Economic and Political Assessment
The difficulties of controlling mobile sources are illustrated by the U.S. experience.
An infeasible compliance schedule for meeting the ambient standards was
established for mobile-source pollutants by the 1970 amendments to the Clean Air
Act. The chief instruments to be used by local areas in meeting these standards
were the new-car emissions standards. Because these applied only to new cars, and
because new cars made up such a small proportion of the total fleet, significant
emissions reductions were not experienced until well after the deadline for meeting
the ambient standards. This created a very difficult situation for local areas, since
they were forced to meet the ambient standards prior to the time that the emissions
standards (the chief sources of reduction) were having much of an impact.
The only strategy open to them was the development of local strategies to make
up the difference. Recognizing the difficulties the states faced, the EPA granted an
extension of the deadline for submitting the transportation plans that would spell out
the manner in which the standards would be reached. This extension was challenged
in court by the Natural Resource Defense Council, which successfully argued that
the EPA did not have the authority to grant the extension. Faced with the court’s
decision, the EPA was forced to reject the state implementation plans submitted by
455An Economic and Political Assessment
6
Magdolna Lovei. Toward an Unleaded Environment: World Bank Support to Transition Economies (2001),
http://www.worldbank.org/html/prddr/trans/m&j96/art5.htm.
456 Chapter 17 Mobile-Source Air Pollution
most states as inadequate, because those plans could not ensure attainment by the
deadlines. Because the law clearly states that the EPA must substitute its own plan for
an inadequate plan, the EPA found itself thrust into the unfamiliar and unpleasant
role of defining transportation control plans for states with rejected SIPs.
Two main problems with this development surfaced: the EPA was not admini-
stratively equipped in terms of staff or resources to design and implement these
plans and, because of the severity of the mismatch between deadline and
implementation, the EPA could have done very little, even if the staff and resources
had been available.
The EPA made a valiant, but futile, attempt to meet its statutory responsibilities.
It concluded that the best way to resolve its dilemma was to work backward from
the needs to the transportation plans and, once the plans were defined, to require
states to implement and enforce them. To ensure state cooperation, they set up a
system of civil penalties to be applied against states that failed to cooperate.
The resulting plans were virtually unenforceable because they were so severe.
For example, in order to meet the ambient standard in Los Angeles by the deadline,
the plan designed by the EPA called for an 82 percent reduction in gasoline
consumption in the Los Angeles basin. The reduction was to be achieved through
gasoline rationing during the six months of the year when the smog problem was
most severe. In publishing the plan, the EPA Administrator William Ruckelshaus
acknowledged that it was infeasible and would effectively destroy the economy
of the state if implemented, but argued that he had no other choice under the law.
The states raised a number of legal challenges to this approach, which were never
really resolved in the courts by the time Congress revised the act. The Clean Air Act
Amendments of 1977 remedied the situation by extending the deadlines.
The lesson from this episode seems to be that tougher laws do not necessarily
result in more rapid compliance. By creating a statutory requirement that could not
be met, virtually nothing was accomplished as the various parties attempted to
fashion a resolution through the courts.
Technology Forcing and Sanctions
This lesson was underscored by the EPA’s experience in gaining compliance with
the national emissions standards by the automobile manufacturers discussed earlier
in this chapter. The industry was able to obtain a number of delays in meeting
those standards. The law was so tough that it was difficult to enforce within the
time schedule envisioned by Congress.
This problem was intensified by the sanctions established by the Act to ensure
compliance. They were so brutal that the EPA was unwilling to use them; they did
not represent a credible threat. For example, when an engine family failed the
certification test, the law is quite specific in stating that any vehicle classes
not certified as conforming with the standards cannot be sold. Given the importance
of the automobile industry in the American economy, this sanction was not likely to
be applied. As a result, there were considerable pressures on the EPA to avoid the
sanctions by defining more easily satisfied procedures for certification and by setting
sufficiently flexible deadlines that no manufacturer would fail to meet.
457An Economic and Political Assessment
Differentiated Regulation
In controlling the emissions of both mobile sources and stationary sources, the
brunt of the reduction effort is borne by new sources. This raises the cost of new
sources, and from the purchaser’s point of view, increases the attractiveness of used
cars relative to new ones. The benefit from increased control (cleaner air) is a
public good and therefore cannot be appropriated exclusively by the new car
purchasers. One result of a strategy focusing on new sources would be to depress
the demand for new cars while enhancing that for used cars.
Apparently this is precisely what happened in the United States (Gruenspecht,
1982). In response to the higher cost of new cars, people held onto old automobiles
longer. This has produced several unfortunate side effects. Since new cars are
substantially cleaner than older cars, emissions reductions have been delayed.
In effect, this shift in fleet composition is equivalent to a setback of three to four
years in the timetable for reducing emissions (Crandall et al., 1986, 1996). Also,
because older cars get worse gas mileage, gasoline consumption is higher than it
would otherwise be. The focus on new sources is, to some extent, inevitable; the
lesson to be drawn is that by ignoring these behavioral responses to differentiated
regulation, the policy maker is likely to expect results sooner than is feasible.
Uniformity of Control
With the exception of the California standards, which are more stringent, the
Clean Air Act requires the same emissions standards on all cars. The calculations
were designed to ensure that required levels of control would be sufficient to meet
the ambient standards in Los Angeles or in high-altitude cities such as Denver. As a
result, many of the costs borne by people in other parts of the country—
particularly rural areas—do not yield much in the way of benefits.
This sounds like an inefficient policy since the severity of control is not tailored
to the geographic need. Indeed most of the studies that have been accomplished
indicate that this is so.
It is a generally shared conclusion that the costs of control exceed the benefits for
automobile pollution control (Crandall et al., 1986, 109–116). Large uncertainties
in the benefit estimations, a theme we have explored in several previous chapters,
and the failure of any of these studies to consider the role of auto emissions of
carbon in climate change force us to take these results with a grain of salt.
Nonetheless, it is interesting that because the current policy forces manufacturers to
operate on a very steep portion of the marginal control cost function, benefit
uncertainty does not seem to affect the conclusion that the current standards are
inefficiently strict with current technology. New technologies and the need to
control CO
2
may change that conclusion.
The Deterioration of New-Car Emissions Rates
As part of its investigation of the Clean Air Act, the National Commission
on Air Quality investigated the emissions of vehicles in use and compared these
458 Chapter 17 Mobile-Source Air Pollution
emissions levels to the standards. Their estimates were a blend of actual measured
emissions for model years already in the fleet plus forecasts for future model years
based on knowledge of the technologies to be used. Particularly for hydrocarbons
and carbon monoxide, the deterioration of emissions rates in use was pronounced.
The Commission also investigated the factors contributing to poor in-use
emissions performance. It found that the principal reason for the poor performance
was improper maintenance. Carburetor and ignition-timing misadjustment were key
factors. Component failure and tampering were also found to affect emissions levels,
though to a lesser degree.
Inspection and Maintenance (I&M) Programs. One policy response to
emissions rate deterioration (along with requiring manufacturers to grant extended
warranties for emissions control systems) was to require I&M programs in
nonattainment areas. How successful was this approach?
These programs have met with mixed success at best over the past decade.
Motorists have little incentive to comply with the requirements unless forced to do
so, because repair costs can be high and the benefits of repair are mostly externalities.
This means that enforcement is the key component, but due to the sheer number of
vehicles involved, it is also very difficult.
What is the evidence? One review of the evidence (Harrington et al., 2000)
found these programs to be relatively cost-effective, although significant
opportunities for targeting the programs remain unexploited. In addition to
targeting programs at the areas where vehicle air pollution problems are severe,
programs could also do a better job of targeting the problem vehicles. A relatively
few vehicles typically turn out to be responsible for a disproportionate share of the
mobile-source pollution. This implies that for most vehicles, the test is expensive,
but it produces little private or social benefit. To the extent that these programs
could identify the few high-emitting vehicles (through remote sensing, for
example) and bring them into conformance at a reasonable cost, these programs
could be much more cost-effective.
A few states have adopted I&M programs that assign a supplementary role to
on-road emissions testing by using remote-sensing technology. In Texas, for example,
roadside enforcement officers use remote sensors to identify vehicles that have
malfunctioning emissions control systems (similar to the way radar is used to identify
speeders). Using the recorded license numbers, the owners of the vehicles can then be
contacted and required to take appropriate corrective actions. Other states, such as
Colorado and Missouri, use a “clean screening” program in which roadside remote
sensing is used to exempt vehicles from central testing requirements.
Challenges remain for expanded use of remote sensing, however. Further
controlled testing of remote-sensing devices is necessary to improve quality
control, and the technology must be further developed to be able to measure the
full range of automotive pollutants (especially particulate matter).
Alternative Fuels. In addition to controlling in-use emissions by means of I&M
programs, the Clean Air Act Amendments of 1990 required nonattainment areas to
use cleaner-burning automotive fuels (oxygenated fuels) during the winter months
459An Economic and Political Assessment
in some cases and year-round (reformulated gasoline) in the worst cases. Ethanol
and methyl tertiary butyl ether (MTBE) were the two additives most widely used to
meet the oxygen content standard.
Largely due to cost, most non-Midwestern states opted for gasoline with the
additive MTBE, rather than ethanol. MTBE is designed to make gasoline burn
cleaner and more efficiently. Unfortunately, once it entered into widespread use, it
was discovered to be a source of contaminated groundwater and drinking water.
Once in soil or water, MTBE breaks down very slowly while accelerating the
spread of other contaminants in gasoline, such as benzene, a known carcinogen.
Once these properties became known, several states passed measures to ban or
significantly limit the use of MTBE in gasoline.
The MTBE story provides an interesting case study of the problems that can
occur with a strategy that relies on a “technical fix” to solve air pollution problems.
Sometimes the effects of the “solution” can, in retrospect, turn out to be worse
than the original problem.
Even before the MTBE water contamination issue surfaced, questions were being
raised about the cost-effectiveness of using oxygenated fuels. For example, when
Rask (2004) compared the oxyfuel smog test results to emissions’ improvements
resulting from emissions system repairs, he found increased maintenance and repairs
to be a much more cost-effective strategy for lowering CO and hydrocarbon emis-
sions than oxyfuels.
In 1989 the South Coast Air Quality Management District identified 120
options for reducing volatile hydrocarbons. The average cost-effectiveness of the
68 measures proposed was a stunning $12,250 per ton. While early estimates such
as these should not determine the outcome, they certainly do suggest that caution
against proceeding too rapidly down this path would be appropriate.
Lead Phaseout Program
Following the path broken by the early emissions trading programs, the U.S.
government began applying this approach more widely. In the mid-1980s, prior to
the issuance of new, more stringent regulations on lead in gasoline, the EPA
announced the results of a benefit–cost analysis of their expected impact.
The analysis concluded that the proposed 0.01 gram per leaded gallon (gplg)
standard would result in $36 billion ($1983) in benefits (from reduced adverse
health effects) at an estimated cost to the refining industry of $2.6 billion.
Although the regulation was unquestionably justified on efficiency grounds,
the EPA wanted to allow flexibility in how the deadlines were met without
increasing the amount of lead used. While some refiners could meet early dead-
lines with ease, others could do so only with a significant increase in cost.
Recognizing that meeting the goal did not require every refiner to meet every
deadline, the EPA initiated an innovative program to provide additional
flexibility in meeting the regulations (see Example 17.3). The program was
successful in reducing both lead emissions and the concentration of lead in the
ambient air. From 1981 to 2001, emissions of lead fell by 93 percent and
concentrations of lead in the air fell by 94 percent.
460 Chapter 17 Mobile-Source Air Pollution
Possible Reforms
We have seen that the current approach has some salient weaknesses. Reliance on
controlling emissions at the point of production produced major improvements in
cars leaving the assembly line, but emissions rates deteriorated with use. The use of
uniform standards has resulted in more control than necessary in rural areas and
perhaps less than necessary in the most heavily polluted areas. Manufacturers have
been able to delay implementation deadlines because the sanctions for noncompliance
are so severe that the EPA is reluctant to deny a certificate of conformity. This reality
motivated a search for further reforms.
Fuel Taxes
As controls on manufacturers have become more common and vehicles have
become cleaner, attention is increasingly turning to the user. Drivers have little
incentive to drive or maintain their cars in a manner that minimizes emissions
because the full social costs of road transport have not been internalized by current
policy. How far from a full internalization of cost are we? Parry et al. (2007)
compile estimates from the literature and find the sum of mileage-related external
marginal costs to be approximately $2.10 per gallon. Mileage-related externalities
Getting the Lead Out: The Lead Phaseout Program
Under the Lead Phaseout Program, a fixed number of lead rights (authorizing the
use of a fixed amount of lead in gasoline produced during the period) were
allocated to the 195 or so refineries. (Due to a loophole in the regulations, some
new “alcohol blender” refineries were created to take advantage of the program,
but their impact was very small.) The number of issued rights declined over time.
Refiners who did not need their full share of authorized rights could sell their
rights to other refiners.
Initially no banking of rights was allowed (rights had to be created and used in
the same quarter), but the EPA subsequently allowed banking. Once banking was
initiated, created rights could be used in that period or any subsequent period up
to the end of the program in 1987. Prices of rights, which were initially about 0.75
cent per gram of lead, rose to 4 cents after banking was allowed.
Refiners had an incentive to eliminate the lead quickly because early reductions
freed up rights for sale. Acquiring these credits made it possible for other refiners
to comply with the deadlines, even in the face of equipment failures or acts of
God; fighting the deadlines in court, the traditional response, was unnecessary.
Designed purely as a means of facilitating the transition to this new regime, the
lead banking program ended as scheduled on December 31, 1987.
Sources
: Barry D. Nussbaum, “Phasing Down Lead in Gasoline in the U.S.: Mandates, Incentives, Trading
and Banking.” CLIMATE CHANGE: DESIGNING A TRADEABLE PERMIT SYSTEM, by T. Jones and
J. Corfee-Morlot, eds., (Paris: Organisation for Economic Cooperation and Development Publication,
1992), pp. 21–34; and Robert W. Hahn and Gordon L. Hester. “Marketable Permits: Lessons from Theory
and Practice.” ECOLOGY LAW QUARTERLY, Vol. 16 (1989), pp. 361–406.
EXAMPLE
17.3